Vallum India Discovery under-performs Midcap Index
First, we have to note the grim news that the Vallum India Discovery PMS Fund has under-performed the BSE S&P Midcap Index.
While the Midcap Index lost 3% in FY 2019, the Vallum Fund lost 8.4%.
Manish Bhandari has explained that one of the reasons which caused the disparity in performance between the Vallum Fund and the Index is that the classification of some shares as being “small-cap”/ “mid-cap” was changed by SEBI in Q1 CY 2018.
This caused some stocks to be indiscriminately dumped by large institutional holders as they could no longer hold them.
The second is that some stocks in the portfolio have under-performed owing to operational reasons and this has taken a toll on their stock price.
The third is that though Infotech stocks have been outperformers, Manish Bhandari omitted to add any of them into the portfolio.
Fortunately, over the long-term the Vallum PMS Fund has outperformed the Index.
It has delivered CAGR return of 28.4% since October 2011 which compares favorably with the return of 13.4% delivered by the Index in the same period.
|Portfolio Performance||Vallum India Discovery||BSE S&P Midcap|
|CAGR Since Incept. (Oct 11)||28.4%||13.4%|
— Manish Bhandari (@VallumConnect) April 18, 2019
Latest stock picks
Anyway, our interest in the Vallum PMS Fund is confined to decoding the latest stock picks and deciding whether they have multibagger potential or not.
Largest multiproduct pipe manufacturing business – Jindal SAW Ltd?
Manish has described his latest stock pick as the “largest multiproduct pipe manufacturing business in the country which is benefiting immensely from the upcoming infrastructure boom in setting up of gas grids, increasing number of oil exploration projects, expansion of CNG distribution across cities, setting up of new refineries and ambitious river linking program envisaged by the government”.
He has also opined that the recent change in NELP regulation leading to auction of sixty six oil fields of ONGC, and incentives suggested by Group of Ministers (GOM) will usher boom in oil and gas exploration capex in India.
He has also stated that the product profile of the Company has changed materially moving into high value add products.
He has also claimed that the company is set to grow its sales by CAGR of 12%, earnings in a non-linear fashion with ROCE of 16%.
It currently trades at half of its book value and is a “value buyer’s delight”, he says.
A reference has also been made to that fact that the company won an arbitration award of Rs. 2000 cr against NTPC for disputes related to supplies of coal by one of its subsidiaries.
Prima facie, the reference is to Jindal SAW Ltd. It is a multiproduct pipe manufacturer and its subsidiary, Jindal ITF, did win an arbitration award of Rs. 2000 crore against NTPC.
However, NTPC has vowed to challenge the arbitration award according to press reports.
KRBL – moat overlooked
It is no secret that KRBL is one of Manish Bhandari’s all-time favourite stocks.
In fact, he has publicly recommended it in Outlook Business.
He had then described it as “a compelling story of value migration towards branded business”.
Mohnish Pabrai escaped loss of Rs. 150 crore loss in KRBL
KRBL also came into our radar when Mohnish Pabrai pounced on it and added it to his portfolio of multibaggers (see Is Mohnish Pabrai’s Latest Stock Pick A “Screaming Buy” Multibagger Or An Overvalued Compounder?).
Thereafter, KRBL got embroiled in the infamous Augusta Westland Bribery scam and its stock price tanked.
Thankfully, Mohnish had a providential escape because the sleuths of the ED decreed that his purchase of the stock from the Balsharafs was null and void.
Mohnish breathed a sigh of relief because he was saved a crippling loss of Rs. 150 crore from the stock (see Mohnish Pabrai Escapes Loss Of Rs. 150 Crore As Fav Stock Tanks In Bribery Scam).
KRBL’s Auditors are “even more dangerous”?
According to an article by Kunal Thanvi of EquityMaster, what is “even more dangerous” than the bribery scam is that the fact that “the auditors of KRBL are the Bindal Brothers (Vinod Bindal and Sanjeev Bindal)”.
Apparently, in 2014, the worthy auditors were suspected by the CBI to “manipulate contracts and government functioning” and are restrained from working with the government and its officials.
Misconstrued perception on regulatory issue has clouded duopoly position
Surprisingly, despite the alleged scam that KRBL is embroiled in, Manish Bhandari’s appetite for the stock has not waned.
Instead, he has claimed that the market has overlooked the improving competitive positioning of business over the last few years.
He has also opined that KRBL’s moat rests in the power of its brand, global supply chain & distribution expertise for procuring a million tons of paddy and rice as well as superior financing capabilities for its inventory.
“The misconstrued perception of market participants on the regulatory “issue” has clouded its duopoly position in the global basmati market while earnings are compounding in excess of 12% p.a throwing Return on capital employed in excess of 35 per cent, net of their investment in renewable energy business,” he says.
He has pointed out that KRBL is trading at price to book value of 3x in comparison to 15-18x for other branded FMCG companies, which means that it is dirt cheap.
“The market has extrapolated the company’s perceived troubles into perpetuity and valued the company like a melting ice cube, ignoring the fact that the company had enjoyed decades of organic, double-digit growth, led by its founder and family as a majority shareholder. We believe this duopolistic consumer Indian brand would be highly valued in the due course of time,” Manish Bhandari has asserted in a tone of defiance.
Shilpa Medicare – earnings will see non-linear rise
Shilpa Medicare, which is described as a “Raichur based oncology API & Formulation Company” is also no secret because Manish Bhandari has publicly recommended it to us as his “best pick of 2015” in Outlook Business.
Manish has pointed out that Shipla Medicare is progressing well with more than 25 Oncology/Non-Oncology filings for the regulated markets.
It is also in the process of building a strong pipeline for the Rest of the World market.
He has added that it has an enviable standalone infrastructure for Oncology : 9 Oncology Blocks – the Largest in Asia.
He has confidently opined that the earnings of the company will see non-linear rise over the next few years.
Shilpa Medicare has received U.S. Food and Drug Administration tentative approval for its ANDA, Bortezomid for Injection, 3.5mg/vial on 08.04.2019
Used in the treatment of patients with multiple myeloma and
Mantle Cell Lymphoma
— Proxy Investor (@proxy_investor) April 9, 2019
Market leader of sugar and ethanol manufacturing – Balrampur Chini?
One of the stocks is described by Manish Bhandari as a “market leader of sugar and ethanol manufacturing in India”.
This company is said to be debt free and is likely to achieve earnings of more than Rs 600-700 crs – in a depressed sugar price cycle, and is available at market cap of Rs 3,000 crs.
He has also pointed out that the Company is implementing its “third consecutive buyback plan in year 2019”.
According to my research, the reference appears to be to Balrampur Chini Mills.
The stock has been a spectacular multibagger with 100% gain in just the last 12 months.
Varinder Bansal, the authority on sugar and ethanol stocks, has explained the nuances of the sector in the ‘Research Gurukul’ programme.
Market finally recognizing the sector where we have very bullish since last 6-8 months 🙂 https://t.co/mCVGoxE7pq
— Varinder Bansal (@varinder_bansal) February 25, 2019
A lot of people laughed at us….mocked at us….but we just kept on reading & learning + doing ground research & finally feel v satisfied.. #ETHANOLtheme
— Varinder Bansal (@varinder_bansal) February 13, 2019
Other stocks in portfolio
Manish has also homed in on a number of other potential multibagger stocks including a “global leader in fluorine chemistry“.
He has also given the “gold medal” to a “fertilizer and chemical company which has a duopoly position in the chemical business and is growing at 10% p.a with return on capital employed of 22%“.
He has also revealed that he dumped the stock of “one of the most cost efficient players in the hospital industry run by a stellar promoter” owing to it being a “very long gestation opportunity“.
We will have to decipher the clues given and decode the names of the stocks.